Governments Need To Act More Like Businesses

Over 230 years ago Adam Smith proposed a startlingly simple recipe for economic development. As he put it, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things”   

Sounds pretty simple doesn't it? So how do you figure Vermont fares up against these prerequisites to economic development? We easily satisfy the first requirement. Vermont's peaceful by any measure - in fact, not much at all happens here.  However, the second and third requirements present more of a challenge.

Within the context of taxes the term easy can only mean two things, easy to calculate or easy to pay, (or both). Considering the nature of tax system of his era, I'm reasonably sure Smith never imagined tax regulations would/could ever become as complex as the US Internal Revenue Service code. Nonetheless, the US has been astoundingly successful. Therefore, for the purposes of this post we'll assume he meant easy to pay.
By this measure Vermont isn't doing so well. We have the highest taxes in the country on a dollar per GDP basis. Vermont's total tax burden is more than double the rate of the three lowest taxed states and 67% more than the national average. Although the total tax burden, (state and federal), is relatively low in comparison to foreign countries. Thus, its difficult to argue are taxes are too high to, or not easy enough, to foster economic development. Indeed, the US tax burden is nearly 15% less than EU countries who are by world standards relatively wealthy. Therefore, it would appear Vermont's primary impediment results from the large discrepancy between tax rates in other states rather than the rate being too burdensome.

The third issue, the tolerable administration of justice, is an open question.  The US court system is perhaps the fairest and most just system in the world. However, there are aspects of the Vermont system that raise concerns. Specifically, the environmental court has been repeatedly criticized by the business community for failing to provide a stable and predictable regulatory environment. This unto itself is not enough to argue we lack a tolerable administration of justice. It is sufficient to raise questions of Vermont's relative tolerability with regard to other states.

The purpose of this exercise is to demonstrate that we have the basic requirements for economic development. This raises the question of why have we not been economically successful (as other US states) even though we have the tools at our disposal? The answer of course is because we're not competitive with the other states.  Our taxes aren't too high, but they are higher than other states. Our courts aren't too un-tolerable, but, they are less tolerable than courts in many other states. We need to learn to compete. In fact, all states need to learn the new rules of governing in the global economy. They must compete to survive. Simply providing an peaceful, easy, and tolerable system will not guarantee success.

States competing with each other in this way represents a fundamentally different  way of governing.  The states that succeed will be the one who think and act like a business. States adopting political ideologies that focus on social issues will  not be competitive and will thus fail to achieve their idealistic goals or foster a vibrant economy.   

Comments

[GreggB]

Competition is a dirty word in vt. Folks either came to vt or stayed here so they didn't have to compete in the big bad world.